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Explained: Merchant Account and Credit Card Processing Solutions

Having a globalised market means consumers and merchants, anywhere in the world, can easily exchange products for payments through the convenience of credit card payments. Making profit on a product has never been more simple! Well, yes and no.

Any business owner who wants to accept money through credit card payments, must have a Merchant Account in which to receive the money. This is because, in order for a merchant to receive the payment in cold hard cash, the digital information from the payment, whether made via a physical credit card reader or an online payment, must first be processed. This process is performed by a merchant service provider to ensure the payment is legitimised and that each party involved – the customer, the merchant, and the bank where the merchant holds their account – can trust the payment information will arrive to it’s intended destination.

In order to set up a Merchant Account, a business will first need to qualify for a Merchant Identification Number (MID). While service provider companies are, of course, eager to take on new clients, they still need to protect their own interests by ensuring that you are a legitimate merchant worth representing. The requirements for qualifying are determined by the service provider and choosing a one that will provide the credit card processing solution that works best for the business, can be and confusing and overwhelming task.

The first thing to know is that there are essentially two kinds of service providers: processors and resellers. Processors or Acquirers, have the technical ability to perform the actual process of receiving and verifying the transaction data with the appropriate financial institutions so that the payment can go ahead. They can also complete the full process to ensure the final funds arrive in the merchant’s regular bank account.

Resellers, or Independant Sales Organisers (ISO), on the other hand essentially sell access to the processors. ISO’s can be banks or non-banks and can be large or small providers. Some examples are Wells Fargo or Paypal. Choosing an ISO over working directly with an Acquiring bank will cost more, however the cost is minimal and many merchants find the value in the extra services offered is well worth the additional fees. An ISO will work on the merchant’s behalf to negotiate the best terms and conditions regarding accounts and transactions as well as help with achieving requirements to qualify for a MID. This has proved so popular that statistics show over 80% of accounts opened are through ISO’s.

However, merchants should still be mindful. Like many sub-contractor service, there are less regulations in place to ensure appropriate practices are implemented and while ISO’s have more freedoms to implement new technologies and strategies, there is a higher risk of error. This is why it is often recommended that new business owners work directly with a processor till they get a good handle on just exactly what they want and expect from their provider. There are also tools available such as the Better Business Bureau to check on a provider’s track record.

Ultimately, choosing the right provider will be determined by the type of business and the services required. First, the main qualifier will be based on whether your credit card payment will be a physical transaction via a card reader, or non-physical via the telephone, internet etc.. The first category is quite straightforward and requires less proofs to for a business to qualify for their MID. The latter is much more complicated because of additional security and communication technology required. The risk is significantly greater and there are so many variables to consider than depend on external factors such as internet connection, delivery times, quality control etc.

In regards to fees, a merchant will need to carefully consider what processing channels they need or might need in the future. Maybe they are a physical retail store with card-present payments now, but are planning to expand to open an e-commerce website. They will need to consider their business’ growth strategy? Will this fit within the current agreement without incurring extra fees? Will an increase in the volume of transactions and the amount of revenue also increase fees charged by the processor?

In conclusion, there is no easy answer to choosing the right merchant service provider. It will require a doing some thorough research and maintaining a clear perspective of your business’ needs and its future potential.